What is this called?

Discussion in 'Options' started by tmf, Mar 22, 2012.

  1. tmf


    When you buy a call and sell a put at same strike and same expiry?

    Do people do this?

    Is it hard to get this allowed on your trading account?

    I ran some scenarios with an options calculator and it seems very good..... as long as you pick a stock that is going up :)

  2. hajimow


    It is called synthetic long underlying and yes it is widely used. You can also do it in different ratios. You can sign up with your broker to trade option and claim that you know options and then accept the risk. Based on your question, I recommend you study a little bit more and do some paper trading. It is never late to lose money . :)
  3. tmf


    I have options trading on my account but you need to be able to write naked put and calls right and so far it does not let me....

    Do you think also they make you place the transaction at one time? Or you buy one, then sell the other in 2 separate transactions.......

  4. hajimow


    Option trading comes in different levels. The fisrt level is covered call and buying puts. selling naked call and PUT is called more advanced level that you should sign up for that. Basically by signing up, you tell your broker that I know what I am doing and know the risk.

    You can do that trade in one order or usually they do that in a complex strategy. Say you buy Call first and then the stock drops and you are sure that it will bounce back so you go ahead and sell PUT to make some money to compensate for the money that you paid for the call. It is also called "risk reversal".
  5. hajimow


    by the way, who is your broker?
  6. tmf


    itrade in canada
  7. hajimow


    Not familiar with them but you can call them and let them know what you want to do and ask for the paperwork or do online signup. Some brokers don't let the customers do any naked trading on options. For example Scottrade did not used to let the customers do that a few years ago.
  8. FSU


    This is exactly the same as buying the stock outright, except you will pay a bit more in commissions.

    The only time this play makes sense for a retail trader is when a stock is hard to borrow. If this is the case, you will have an edge over simply buying the stock outright.
  9. jys78


    I would be VERY wary of using iTrade for anything other than the most simple long option positions. Ideally, don't use them at all. Ancient and buggy interface, no support at all, frequent severe errors (e.g. they once changed a long call position I had to SHORT call overnight for no apparent reason tying up a huge amount of margin for almost a month while I spent a ridiculous amount of time getting them to correct their error). I have never heard of this kind of thing (spontaneous conversion of long to short position) at any other broker, let alone taking the amount of time and hassle it did to rectify.

    Also, you have to phone in the most basic option spread orders and when you do manage to get someone on the phone they are arrogant and ignorant.

    If you're seriously looking into options trading I would suggest you look at OptionsXpress as they have a good Canadian platform.

    Good luck!